Don't tell Sid! How the bank shares wipeout hit the savings of the windfall generation

The failure of British banks has cost the taxpayer a fortune in recent years. Official figures have put the price of the rescue at as much as £850billion (that's nearly a whole years' worth of Britain's total tax take).

And that's even before the impact on the economy is considered.

When investing was popular: British Gas privatisation advertising campaign 'Tell Sid' from the Eighties

But startling figures published today on returns show how banks shareholders have also felt considerable pain.

Sympathies will be limited for traders and institutional investors but the big banking blowout of 2008 and 2009 has been acutely painful for small investors.

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At one point, nearly three million people held windfall Halifax shares - the former building society is now part of struggling Lloyds Banking Group. Those who held on through the good time and bad times would have very little to show for their loyalty.

A wave of demutualisations in the Nineties left Britain with a handful of second-tier banks ready and hungry for expansion, including Halifax, Abbey, Northern Rock, Bradford & Bingley.

Meanwhile other recipients of windfall shares found themselves holding shares in larger banks after their former societies were snapped up, such as the TSB being swallowed by Lloyds.

FROM BUILDING SOCIETY SAFETY TO BANKING DISASTER: WHERE ARE THE FORMER MUTUALS TODAY?

Abbey National was the first to demutualise in 1989. But it was the late Nineties that windfall fever gripped members of societies.

When Halifax demutualised in June 1997, more than 7.6m customers received an allocation of shares worth around £2,500.

Many Britons embraced the culture of share ownership after the success of Margaret Thatcher's privatisations in the Eighties and the memorable 'Tell Sid' TV campaign for the British Gas sell-off.

But the appetite for investing was tested not only by a woeful decade for stock market investing but in particular by the pain for bank shareholders.

Research by the investment website Motley Fool suggests only two of the UK’s quoted banks have delivered a positive return for shareholders over the last 11 years.

Motley Fool says it seems that 'million-pound payouts for top executives are now the norm rather than the exception'.

Yet it says only two of the UK’s banks 'should even consider paying bonuses to executives given the appalling long-term track records'.

'Only two banks have succeeded in delivering a positive return over more than a decade. Therefore only two banks should even consider paying a bonus at the moment,' said David Kuo, Motley Fool director.

'Bonuses can be a good way to incentivise both staff and managers to deliver outstanding performance.

'However, the payment of bonuses needs to be aligned with the interests of shareholders if they are to be meaningful.'

Standard Chartered, a UK-listed bank focused on the Far East, stands out as the best performer. A £10,000 investment in Standard Chartered in 2000 would be worth around £27,400 today with dividends re-invested.

Source: Bloomberg and Motley Fool

A similar investment in HSBC would be worth £11,900, which amounts to a loss once inflation is factored in. Even in nominal terms, the return is only 1.4 per cent a year.

But for investors in Barclays, the £10,000 would now be worth £7,610.

Fred the Shred: Shamed Goodwin was stripped of his knighthood

In stark contrast, executives at the bank have been pocketing hundreds of millions. Jerry del Missier, the co-chief executive of the investment banking arm, Barclays Capital, was paid £14.26million in pay and bonuses alone last year. And he also pocketed a further £33million from a sale of shares awarded to him.

Last week, Barclays chief executive Bob Diamond declined to reveal his bonus. Those details will emerge shortly from the company's annual accounts.

But his total income, including share sales and other schemes, between 2005 and 2010, could be as high as £75million [read the full details].

Backers of Lloyds Banking Group and Royal Bank of Scotland have lost most, today sitting on just £1,500 and £900, respectively.

In contrast, shamed former chief executive Fred Goodwin left with a £3million pay-off and a £693,000-a-year pension (which was later halved), not to mention years of earning more than £2million a year. The act of stripping Goodwin of his knighthood will go little way to appeasing wiped out shareholders.

The biggest losers among bank shareholders, of course, were those that backed Northern Rock and Bradford & Bingley. Shareholders were entirely wiped out when the banks were nationalised.

Kuo added: 'Paying a bonus before shareholders have enjoyed a return is no better than rewarding a seal before it has performed its trick.'

THE COST OF BANKING COLLAPSE

The National Audit Office has said that we spent £850 billion on the bank crises in 2009. That would equate to a £26,562 and fifty pence spend by every taxpayer in the UK.

Some of this was from printed money - quantitative easing, which is now up to £325billion - so the impact on taxpayers should be less than that.

And there should, hopefully, be an opportunity to recoup some of the money invested in RBS and Lloyds when those stakes are sold.

Last the NAO broke down those figures thus:

• £76billion on the shares in RBS and Lloyds;• £200billion for liquidity support through the Bank of England (Quantitative Easing);• £250billion in guarantees on banks’ borrowings;• £40billion in loans to Bradford & Bingley and others; and• £280billion in providing insurance cover for banks’ assets.

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How the bank shares wipeout hit the savings of the windfall generation